8 Step Research Process

Chris Haroun
A free video tutorial from Chris Haroun
Award Winning MBA Professor, Venture Capitalist and Author.
4.5 instructor rating • 34 courses • 837,051 students

Lecture description

This lecture will teach you my 8 step research process that I have refined over my career, which makes it much easier to identify great investment ideas. 

Learn more from the full course

The Complete Financial Analyst Training & Investing Course

Succeed as a Financial Analyst &Investor by Award Winning MBA Prof who worked @Goldman, in Hedge Funds & Venture Capital

22:31:28 of on-demand video • Updated April 2020

  • 22+ hour complete financial analyst course!
  • #1 Best Selling Investing Course on Udemy!
  • How to pick stocks.
  • Become an expert in Excel for financial analysts (no prior Excel knowledge is required).
  • How to manage a portfolio.
  • How an IPO works.
  • How to build financial models.
  • How to get hired and promoted as a financial analyst.
  • How risk management works.
  • How to use technical analysis.
  • How to value companies.
  • Use and create Excel based templates developed by Chris to help you create financial statements from scratch (meaning income statements, balance sheets, cash flow statements and more).
  • Use and create Excel based templates developed by Chris to help you value companies using several different valuation methodologies, including P/E, P/R and Discounted Cash Flow (DCF).
  • Use and create Excel based templates developed by Chris to help you manage a portfolio.
  • How Monetary Policy works.
  • How Fiscal Policy works.
  • How interest rates are changed and why this is crucial to understand for successful financial analysts.
  • How to pitch long and short ideas to portfolio managers.
  • How to find great venture capital investment ideas.
  • How to come up with mutual fund investment ideas (longs - meaning buys) using an easy to understand top down and bottoms up research process.
  • How to come up with hedge fund investment ideas (longs and shorts) using an easy to understand top down and bottoms up research process.
  • Identify crucial catalysts (timed events) in order to know when the optimal time is to buy or short a stock.
  • Understand how investment banks (the 'Sell Side') can help you be more successful in a hedge fund or mutual fund career.
  • Analyze and understand an income statement (even if you have no experience with income statements).
  • Analyze and understand a balance sheet (even if you have no experience with balance sheets).
  • Analyze and understand a cash flow statement (even if you have no experience with cash flow statements).
  • Understand and use modeling best practices so you can create financial models.
  • Know where to get data in order to build a financial model (in depth understanding of identifying and using/navigating the best free websites and sources to build your financial model)!
  • Create a financial model (projecting the future) for an income statement.
  • Other valuation methodologies, including EV/Sales, EV/EBITDA, P/B, EV/FCF, etc.
  • Create a financial model (projecting the future) for a balance sheet.
  • Create a financial model (projecting the future) for a cash flow statement.
  • Understand valuation best practices so you can create target prices based on your financial models.
  • How to use Discounted Cash Flow (DCF) and how to create the Weighted Average Cost of Capital and Terminal values in order to pick target prices.
  • How to use P/E in order to pick target prices.
  • How to use P/R in order to pick target prices.
  • Come up with a target price based on an average of several different valuation methodologies.
  • Learn about 14 different Financial Analyst jobs and how they overlap and work together (including Investment Banking, Venture Capital, Private Equity, Private Wealth Management etc.).
  • Investment Banking: Understand from a high level perspective what an Investment Bank is as well as what the role/job is of an Investment Banking Financial Analyst, including the pros and cons.
  • Venture Capital: Understand from a high level perspective what a Venture Capital firm is as well as what the role/job is of a Venture Capital Financial Analyst, including the pros and cons.
  • Private Equity: Understand from a high level perspective what a Private Equity firm is as well as what the role/job is of a Private Equity Financial Analyst, including the pros and cons.
  • Private Wealth Management: Understand from a high level perspective what a Private Wealth Management firm is as well as what the role/job is of a Private Wealth Management Financial Analyst, including the pros and cons.
  • Sell Side Research Analyst: Understand from a high level perspective what a Sell Side Research Analyst’s firm is as well as what the role/job is of a Sell Side Research Financial Analyst, including the pros and cons.
  • Sales Trader: Understand from a high level perspective what a Sales Trader’s firm is as well as what the role/job is of a Sales Trader Financial Analyst, including the pros and cons.
  • Buy Side Trader: Understand from a high level perspective what a Buy Side Trader’s firm is as well as what the role/job is of a Buy Side Trader Financial Analyst, including the pros and cons.
  • Mutual Fund: Understand from a high level perspective what a Mutual Fund is as well as what the role/job is of a Mutual Fund Financial Analyst, including the pros and cons.
  • Sell Side Trader: Understand from a high level perspective what a Sell Side Trader’s firm is as well as what the role/job is of a Sell Side Trader Financial Analyst, including the pros and cons.
  • Large Non Finance Company: Understand from a high level perspective what a Large Non Finance Company firm is as well as what the role/job is of a Large Non Finance Company Financial Analyst, including the pros and cons.
  • Equity Capital Markets: Understand from a high level perspective what an Equity Capital Markets’ firm is as well as what the role/job is of a Equity Capital Markets Financial Analyst, including the pros and cons.
  • Hedge Fund: Understand from a high level perspective what a Hedge Fund is as well as what the role/job is of a Hedge Fund Financial Analyst, including the pros and cons.
  • Equity Sales: Understand from a high level perspective what an Equity Sales’ firm is as well as what the role/job is of an Equity Sales Financial Analyst, including the pros and cons.
  • Tech / Artificial Intelligence: Understand from a high level perspective what a Tech / Artificial Intelligence’s firm is as well as what the role/job is of a Tech / Artificial Intelligence Financial Analyst, including the pros and cons.
  • Learn what finance role you are most passionate about pursuing.
English [Auto] Let's talk about the research process I developed. So there's two different parts to this. Part one is sector specific these steps. One to three. Basically have you looking down at the forest and deciding should I invest it's top down. Then there's steps 4 to eight which is bottoms up. So look if you're looking up at a certain tree and think should I invest. I've got to do due diligence. And once you select the sector that you want to invest in then you select the stock. OK. And I'll give you an example in a minute. Right. But please keep in mind the investment themes last much longer than you think. And I remember my boss at a couple of hedge funds I worked at. Name is Carson Levin Levitt. He's brilliant. He worked at. I think it was a RCN back in the 1990s and he owned Starbucks all the way up. Right. And he told me that these secular growth stories last longer than you think and I'll explain secular and it. OK so let's move on to the research process. Step one. Select the secular growth market or cyclical growth market or cyclical market decline. Let me explain this. Secular growth means a cool new product that is going to change in industry and it could be a multi year investment for you and the company. So for example iPads or iPhones that sort of thing that's a secular growth trend right secular growth. Right. Or even uber if it was publicly traded. That's a secular growth market right taxis. Disinter mediated by technology. OK. Or there's cyclical markets and economic cycles are pretty extreme right and don't let anybody ever tell you this time it's different it never is. So if you look at an economic cycle when the economy is doing well right homebuilders might do well like KBH or Lynn our great ticker KBH and Eliane. And then when the economy's doing poorly these stocks fall off a cliff. Right. So you need to know where we are in the economic cycle before deciding to invest in a sector. I'll give many examples shortly. OK let's move on to Step number two now. Now we're in a research the drivers and the risks. OK so what are the drivers. Well a driver is one or two things that makes a stock go up. Right. Where a sector do well. Right. And when you do financial modeling which we'll do later in the course story will start from scratch. The drivers are important because it basically is revenue. OK. We'll get there soon. And you also want to find out what the risks are with this company and the best way to find out about risk in a company or a sector is to talk to a competing company that you're not going invest in and ask them what the biggest risk with this company might be investing in. And they'll throw them under the bus. It is. OK. Step three now that you understand the sector you're going to select the winners in the losers. OK. And I want you before moving on. Always ask yourself this prophetic awesome question in five years is this company going to be more relevant or less relevant than it is today. And he said again it's crucial in five years. Is this company I might be investing in. Going to be more relevant or less relevant than it is today. OK. And you you basically started a high level and you understand the sector in a common sense perspective the lists of people on TV because they're biased right. They all own the stocks probably that they're talking about. And then once at this level here. Step three you can select the winners and losers so if it's cloud computing that you want to invest and maybe you'll buy a company called sales force and short a company called SEP or Oracle whatever those are just examples right. Ok cool. Now now that you know which company you might be investing in then you're going to use and try the product. OK. You have to try the product please. Right. Try your best. Right. When I invested in Caterpillar years ago I flew out to Peoria Illinois. Right. I pay for myself. I just so I can check out the factory and talk to management and understand the business a little bit better. Right. It was really cool because those trucks were massive. So try the products right. Really understand how the products work and use common sense don't rely on other people. Do your own due diligence. Always. OK step five. Review the 10-Q and 10-K and the transcripts. This will make more sense later. But the bottom line here is that every stock market has government related rules that mandate that all the companies list on the stock market have to release all their filings write all their financial stuff are any important to everybody at the same time over a certain web site. Every country has got it. In the United States it's called SBC dot gov. And we'll go there later. OK. But if you read their documents they're not sure exactly how to do it and what to look for. You can find out what the risks are what's the background remeasured team that sort of thing. Are there any legal issues. We'll get there soon. Step number six now are you going to build and maintain your financial models so you understand what the drivers now say will help you build revenue. And then the expenses I will show you how later how to do that. And so you'll build your model from scratch and even if you have no experience in finance or accounting I have a teacher from scratch right. You build your balance sheet your income statement cashflow statement right and a lot of stuff is provided to you by the companies on their website. And then you model the future. You got a crystal ball you model the future and we're going to talk at least about five different valuation metrics to come up with the target price. OK. We'll really drill down on three of them but I expose you to many of them in this course. All right. Step 7 is interview the CFO and CEO and you're thinking Gosh Chris why did you why did you leave this towards the end of the investment process. Why don't you talk to them earlier. Well learn from my experience because I've lost a lot of money by talking to management teams first before doing due diligence. Why did I lose money. Well CEOs and CFOs are the best salespeople on the planet. That's how they got to that position. OK so do your own research first. And one of the last step should be talking to the management team OK their salespeople just remember that and the last step is step number eight which is establish a fair value position thesis. OK. And that basically means completed that one pager that I showed you before. All right so here's that one pager. All you have to do is felt this one pager. Right. And sometimes I'll fill out one pagers before an interview right or before a meeting with my portfolio manager years ago. So fill it out and halfway through filling it out I'll say Oh my gosh this is not a good investment anymore. And I'll junk it right now. Fallen away maybe come back to it later. Who knows. This process lets you isolate and analyze what the risks are. Right. And it basically helps you to understand if your original thesis was legitimate or not in underlying company. OK. So let's look at it. So the first section is management and what you can do is go to class or dot com and take a look at management reviews. Right. And then and they quantify it too. So for example Marc Benioff from sales force is like 97 percent by thousands of employees who work for him. And after Glassdoor he can go to Linked-In and just look for people that might also know this management team that you know and just call them I can teach you how to get access to management. Anybody in the world I mean anybody. Here's how. Nobody on Wall Street and no big investment firms go to shareholder meetings. I don't know why. I used to go to them and management loved it when I went because I was the only institutional investor there. And you could be a retail investor in Guzman's team as well. Show up at these that these shareholder meetings. Right. And they're usually pretty small and you'll get one on one time with the management team. Right. And friends of mine that work in sales and need to get access to CEOs and CFOs. I always advise them go to these meetings. It's refreshed ready to go. Right. Sheher means that you get access to see us.